Chapter 16Financing Proposed Projects with Construction LoanSpreadsheet Limitations: Twelve month draw period, where first % draw is only for 4 months. All yellow colored cellare data input cells. Set all data input cells that do not apply equal to zero (i.e. if there is constant growth,set the growth for “Yr2-Yr3” to zero.Property AppreciationSelling CostsGross Building AreaGross Leasable AreaSite Acq. & ClosingOn/Off Site CostsHard CostsSoft CostsLeasing ComissionsRentRent GrowthOverage PercentageOverage on Excess overAverage SalesSales Growth Yr 2 – Yr 3Sales GrowthTenant ReinmbursementTenant Reinb. GrowthExpensesExp. Growth Yr 2 – Yr 3Expenses GrowthVacancy Yr 2Vacancy beginning Yr 3Data Input Box:6.00% per yearHolding Pd. (after con)2.00% of sale pricePermanent Financing120,000Loan Fee110,000Loan Fee Amort2,500,000Loan Amortization850,000Loan Term7,055,500Interest Rate1,576,786Payments per Year45,300Construction Loan15 per GLALoan Amount6.00% per yearTerm5.00% on gross sales % drawn first 4 mos.200.00 per GLA% drawn last months200.27 per GLAInterest Rate316%Loan Fee4.00% per yearTax Considerations8.39 per GLA, yr 2Marginal Tax Rate4.00% per yearCapital Gains Rate9.68 per GLADepreciation2.59%Capital Improvements4.16% per yearCapital Improvements30.00%Tenant Improvements5.00%Tenant ImprovementsSite Acq. & CloseOn/Off-Site CostsHard CostsSoft CostsHomework 7 Instructions
*Use a Microsoft Excel spreadsheet to calculate the solutions
for the problems listed below. You must demonstrate your detailed calculations
by embedding the formulas/functions in the cells, rather than displaying those
details as you would in a word processing document!!!!!!!!!
Chapter 16 Questions :2, 4, 5, 10, 14, 16
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2. What are some
development strategies that many developers follow? Why do they follow such strategies?
4. Describe the
process of financing the construction and operation of a typical real estate
the order in which lenders who fund project development financing are sought
and why this pattern is followed.
5. What contingencies
are commonly found in permanent or take-out loan commitments? Why are they
used? What happens if they are not met by the developer?
10. Why donâ€™t
permanent lenders usually provide construction loans to developers? Do
construction lenders ever provide permanent loans to developers?
What is sensitivity analysis? How might it be used in real estate
16. Why is the
practice of â€œholdbacksâ€ used? Who is involved in this practice? How does it
affect construction lending?
Chapter 16, Problem: 4
Use the attached “Chapter 16
Construction” Excel file to calculate your answers. Do NOT submit this
spreadsheet. Instead, record your answers on the document with your responses
to the questions in Part 1.
to the â€œCh16 Constâ€ tab in the Excel Workbook provided on the Web site.
a.What is the yield to
the lender and the investorâ€™s after-tax IRRif 90 percent of the loan
must be drawn during the first four months and 10 percent during the last eight
assuming 60 percent of the loan is drawn the first four months and 40 percent
the last eight months.
CHAPTER 19 Problems:
1. Two 25-year maturity mortgage-backed bonds are issued. The
first bond has a par value of $10,000 and promises to pay a 10.5 percent annual
coupon, while the second is a zero coupon bond that promises to pay $10,000
(par) after 25 years, including accrued interest at 10 percent. At issue, bond
market investors require a 12 percent interest rate on both bonds.
a. What is the initial price on each bond?
b.Assume both bonds promise interest at
10.5 percent, compounded semiannually. What will be the initial price for each
c.If market interest rates fall to 9.5
percent at the end of five years, what will be the value of each bond, assuming
annual payments as in (a)
(state both as a percentage of par value and actual dollar value)?
Chapter 19, Problem 2 (a &
Use MS Excel to set up a 10-year
amortization schedule including the following columns: NPER (that is the number
of period remaining to maturity), Beginning Balance, Interest Paid, Principal
Paid, Principal Prepaid, and Ending Balance. Remember that interest paid does
not reduce the loan balance. Also, the total mortgage payment amount will
decrease each year due to the prepayments, so it may be helpful to create an
extra column in which to calculate the total mortgage payment for each year. If
your amortization schedule is set-up correctly the loan balance after ten years
will be $0.
2. The Green S & L originated a pool containing 75
ten-year fixed interest rate mortgages with an average balance of $100,000
each. All mortgages in the pool carry a coupon of 12 percent. (For simplicity,
assume all mortgage payments are madeannually
at 12 percent interest.) Green would now
like to sell the pool to FNMA.
a.Assuming a constant annual prepayment rate
of 10 percent (for simplicity assume that
prepayments are based on the pool balance at the end of the preceding
year and begin at theendof
year 1), what is the price that Green could obtain if market interest rates
(1) 11 percent? (2) 12 percent? (3) 9 percent?
Assume that five years have passed since
the date in (a).
What will the